TMI Blog1973 (11) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... afford some relief to small weavers in the handloom and powerloom sector. The scheme covered cotton yam in counts of 20s, 30s and 40s both in hanks and hosiery cones and in counts of 20s, 24s, 30s, 34s and 40s in weaving cones. Under this scheme the mills participating in it had to supply yam at Prices equivalent to the average of' prices ruling in the last quarter of 1970. As a compensation, the participating mills were allotted foreign cotton at a concessional rate of premium and were permitted to sell such cotton in the market. The yarn thus made available was allocated to the various States by the Textile Commissioner. The quantity of yam covered by the Pool Scheme depended upon the quantum of foreign cotton made available for the purpose. In the second quarter of 1972 prices of superfine counts, namely, 60s and above began to rise. The causes were first, shortfall in production caused by prolonged labour strike in Coimbatore and other textile centres in Tamil Nadu; second, an increase in the spindle cost of foreign cotton; third revival of export demand for cotton yarn, and, fourth, large scale unauthorised despatch to foreign countries. In order to arrest this trend, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government for some form of voluntary control on production, distribution and prices which would be beneficial for all the interests concerned and ensure price stability and smooth and orderly movement of yam to the lakhs of weavers in the decentralised sector. The Government decided to bring all yam under control in all respects, viz., prices, production and distribution. The stocks of yarn with mills which had stood at 94,400 bales (of 180 kgs. each) in September, 1972 dropped by December, 1972 to 0,000 bales and still further to 42,200 bales by the end of February, 1973, the lowest on record for the last ten years. By the end of March, 1973 they had gone up to as much as 108,600 bales, and by the end of April to bales. The Government wanted to rectify the imbalance 1,78,000 between production and deliveries of yarn in hanks, cones, pirns, and beams. it was felt that the situation appeared to be man made. In 1972 India exported 21.9 million kgs. of yarn out of the total production of 975 million kgs. The export of handloom goods needed special attention. in this context the suggestions were, first, deliveries of yarn in hanks, and, second requirements of hosiery sector should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... States of Tamil Nadu and Pondicherry where the electricity power cut exceeds 70 per cent. The term regulated price under the notification shall mean the price calculated by taking the difference between the highest contract price as on 1 June, 1972 or the nearest date in case no sale was effected on 1 June, 1972 and the highest price for the relevant count and form of packing during January, 1972 and allowing one-half of the difference to be reduced from 1 June, 1972 price. The first impugned notification was not applicable to yarn sold to hosiery industry and to yarn on beams delivered under specified circumstances, There is no fixation of maximum retail price at the point of sale to the consumer. By a notification dated 31 March, 1973 the Textile Commissioner authorised the Deputy Commissioners and the District Collectors to specify the maximum price of yam to be sold by dealers. The maximum price is to be fixed after taking into consideration (a) invoice price of yarn, (b) incidental charges, (c) such reasonable Margin of profit not exceeding two per cent of the invoice price as the Deputy Commissioner or the District Collector may determine in each case, and (d) any. ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd woollen textiles and cannot be brought within any other item. The first question turns on the consideration whether cotton yarn is covered in cotton textile. The Cotton Textile Order, 1948 is the relevant statute. The petitioners contend that cotton yam is not cotton textile for these reasons. The dictionary meaning of cotton textile is that textile is a woven fabric and any kind of cloth. Cotton textile is a finished product. Cotton textile is an end product. Cotton textile therefore, cannot be yam. In the report of Price of Cotton, Yarn and, Cloth published in the year 1962 cloth and yam are treated separately, and, therefore, yam is not within cotton textile. Counsel for the petitioners relied on the decisions in K. R. Subbaier v. The Regional Provident Fund Commissioner, Madras reported in AIR 1963 Madras 112, Kanpur Textile Finishing Mills v. Regional Provident Fund Commissioner reported. in AIR 1955 Punjab 130 and The Deputy Commissioner of Commercial Taxes, Madurai Division, Madurai v. Madurai Printing Tape Factory reported in 28 Sales Tax Cases 431 in support of the proposition that the word 'cotton textiles' should be so construed as not to include cott ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extile. The setting in which the words .Cotton textile are used has a legislative and executive understanding of the words consistently over a period of time. There are also decisions of Courts which accepted yarn to be within textile. The Cotton Cloth and Yam Control Order, 1943 was made in exercise of powers conferred by Rule 81 of the Defence of India Rules. Cloth and yarn in that Order mean and 4--L522SUP CI/74 include respectively cloth and yam manufactured either wholly or partly from cotton. The Cotton Cloth and Yam Control Order, 1945 repealed the Cotton Cloth and Yam Control Order, 1943. The meaning of cloth and yarn was the same as in the Control Order of 1943. There is cognate legislation which treated yarn as cotton textile. The Tariff Act, 1934 in section 1 1 speaks of textile materials and textile goods and yarn is included there. Trade Marks Act, 1940 in section 62. read with Trade Marks Rules 96 and 97 treats cotton yarn as textile goods. The Cotton Textiles Cess Act, 1948 provided for levy of cess on cloth and or yarn. The expressions 'cloth' and 'yarn' are defined to mean cloth and yarn of which prices fixed by any order made under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e field of the Provincial Legislative List were to cease to have effect after 30 September, 1946. The Essential Supplies (Temporary Powers) Act, 1946 received assent of the Governor General on 19 November, 1946 and came into force. Various orders issued under the Defence of, India Rules including Cotton and Yarn Control Order 1945, Cotton Textiles Control of Movement Order 1946, Cotton Cloth and Yam Forward Con.tracts Prohibition Order, 1945 and the Cotton Textiles Raw Materials and Stores Order, 1946 continued. The notification fixing maximum price of cotton yarn and cloth under the Cotton Cloth and Yarn Control Order, 1945 also continued until 28 January , 1948. On 19 February, 1948 the Cotton Textile Control Order was issued under section 3 of the Essential Supplies (Temporary Powers) Act, 1946. The Cotton Cloth and Yarn Control Order, 1945 was repealed. There was no power to control price of yarn and cloth. There was only power to control quantities and specification of cloth and yam. The Cotton Textile Control Order 1948 was issued in the month of August, 1948 repealing the earlier Order. In the new Cotton Textile Control Order of 1948 provision was made for controlling the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial Supplies (Temporary Powers) Act 1946 was limited to 26 January, 1955. The essential commodities to which the 1955 Act applied fell into two broad categories. The first consisted of coal, textiles, iron, steel and paper, etc. which are products of industries under Union control. The second related to foodstuffs, cattle fodder etc. which are not products of such industries. On 19 October, 1962 a notification was issued under section 2(xi) of the Essential Commodities Act, 1955 declaring commodities specified therein used in the process of manufacturing yarn and machinery for manufacturing cloth. Textile Machinery Production and Distribution Order, 1962 was issued under section 3 of the Essential Commodities Act, 1955 for controlling use and distribution and sale of textile machinery including machines used in manufacture of yarn. These legislative measures show that in regard to the scope of these controls in some cases it is possible with reference to the circumstances relating to nature and use of the commodity in question to institute control right from the point of origin to the point of ultimate consumption. In regard to other commodities control has to stop at some i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commodity to sell the whole or specified part to the Central Government or the State Government or other persons mentioned therein. The 1955 Act empowers the Central Government to provide for regulating or prohibiting production, supply and distribution of essential commodities. Section 3(3) of the 1955 Act provides that where any person sells essential commodity in compliance with an order made with reference to clause (f) of sub-section (2) there shall be paid to him (a) price agreed, if it is consistent with the controlled price, (b) the price calculated with reference to the controlled price if no agreement could be reached, (c) the price calculated at the market rate prevailing in the locality at the date of sale, if neither clause (a) nor clause (b) applies. Clause 22 of the 1948 Cotton Textiles Control Order provides that the Textile Commissioner may specify the maximum prices, ex-factory, wholesale and retail, at which any class or specification of cloth or yarn may be sold; or the principles on which and the manner in which such maximum prices may be determined by a manufacturer, and the markings to be made by a manufacturer or dealer on any class or specification o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion and reasonable margin of profit. It is said that clause 22 of the Cotton Textiles Control Order, 1948 which is continued by the Essential Commodities Act, 1955 cannot be construed as authorising the Textile Commissioner to fix an arbitrary price for essential commodities. The fourth contention is that if the provisions of the Cotton Textiles Control Order confer arbitrary power on the Textile Commissioner to fix prices for yarn unrelated to the cost of production and reasonable profits to the producer then the provisions become void by reason of infringement of fundamental rights guaranteed by Articles 19(1)(f) and (g) and 31 as well as Article 301 of the Constitution. The fifth contention is that if the said Order does not authorise fixation of price of cotton yam arbitrarily and without reference to relevant factors such as cost of production and reasonable return, the impugned notification which fix a price for yam below the cost of production of the mills are ultra vires the Cotton Textiles (Control) Order, 1948 inasmuch as the prices fixed under the said notifications are not based on relevant considerations such as cost of production, reasonable return, but are wholly ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores are also to be considered. Labour costs depend on statutory alterations as well as wage Board Awards or negotiated settlements. The impact of prices of stores is indefinite. In the structure of processing costs an allowance has been included for contingencies in order to meet the cost of stores, power, fuel and to prevent inflation only on those items. Price of particular counts of yarn will have to be determined on the basis of fair average of cost of production with due regard to the cotton mix in each producing establishment. Mixes vary from mill to mill as also from time to time. The range of variation of mixes can be brought to a degree of certain technical limits and on the basis of that average cost of raw material can be determined. Another recommendation of the Tariff Commission emphasised distribution chain. A margin of 18 per cent which include freight charge-, on ex-mill prices of cloth which had been applied under the system of voluntary control needed no revision. As regard sales of yarn handloom weavers needed protection. It was, therefore, suggested that a maximum of 11 per cent on ex-mill prices of yarn for sale plus actual freight to the main consuming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the reasonableness of prices fixed. The prices must be fair not only from the point of view of the consumer but also of the producer and the distributor. These are the recommendations of the Commodity Control Committee. The recommendations of the Tariff Board on the cotton yarn and cloth prices in 1948 and of the Tariff Commission on the Cotton Yarn and Cloth Prices in 1962 covered all economic aspects of the industry which have an impact on the ex-mill prices of cloth and yarn. The Government acted upon the Tariff Board formula of price fixation of cloth and yarn from 1949 to 1952. Under that formula fair prices were arrived at by taking into account the main elements of the costs of production and those prices were revised every quarter. The Voluntary Scheme of price control introduced in 1964 adopted the basis of price of cloth and yarn prevalent in August 1959 and certain percentage of increase on account of raw materials, stores and Wage Board Awards. The Tariff Commission view was that the prices should be fair to the 415. producer to cover costs, upkeep of his production apparatus and a, return of 12 per cent. The control over manufacture and sale of mill made cloth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and below are to get price irrespective of any aspect of electricity. It is, therefore, said that the alternative method is that which is fixed by the Tariff Commission. The industry must have reasonable return and fair price will take in cost of production. There should be guidelines in fixing prices. The price fixation which does not fix a price above the cost of production is unreasonable restriction because it poses before the producer the two alternatives between closure and sale below the price. The only guideline is the recommendation of the Tariff Commission. It is a reasonable return of 12 per cent. The price fixed under the impugned orders is for a long time. It is for all times to come. There is no computation of cost. The protection is for handloom weavers and powerloom weavers. If cloth was to be obtained at fair price, the price of cloth should be controlled. The industry was facing steep rise in the cost of production from, 1965 and profits appeared for the first time in 1972- 73. All these factors are, according to the petitioners not taken into consideration in fixing the price. In 1972 there were 670 textile mills. Out of these, 291 were composite mills which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Commodities Act sufficiently specifies the principles on the basis of which price should be fixed. The Central Government fixed the maximum price for sale of rice of certain quantities. The rice millers contended that notification fixing fair price violated Articles 14, 19 (1) (f), (g) and 3 1 (2) of the Constitution, and, therefore, they were entitled to the rates prevailing in the market. The contentions on Article 19 (1) (f) and (g) were repelled on the rulings of this Court in Hari Shankar Bagla v. The State of Madhya Pradesh reported in [1955] 1 S.C.R. 380 and Union of India v. Bhanamal Gulzarimal reported in [1960] 2 S.C.R. 627. In Sri Krishna Rice. Mills, case (supra) the rice was procured after 30 December, 1957 at the rate of maximum price fixed by the Government by notification dated 30 December, 1957. The appellants there contended that they had paid higher prices than fixed by the notification. This Court held that unless it could be, shown that the reduction of price was not fair, it could not be said that the procu- rement after 30 December, 1957 based on the prices fixed in the notification of that date was in any manner against the provisions of the Act or was hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authority in fixing the fair prices. The Controller with a view to fixing maximum price of iron and steel made a flat reduction of ₹ 30/- per ton from the earlier maximum price. The price for sale by registered producers of untested articles was ₹ 333/- per ton whereas the price for sale by controlled stock holders was ₹ 363/- per ton and the price at which the respondents could sell was ₹ 378/- per ton; and as a result of the deduction of ₹ 30/- the respondents were required to. sell at ₹ 348/- per ton. It was alleged that the respondents had purchased commodity at the rate of ₹ 363/- per ton from the controlled stockholders and they were compelled to sell at a reduced price. This Court held that losses in respect of particular transactions would not be decisive because the general effect of the notification is on all the classes of dealers as a whole. If it is shown that in a large majority of cases, if not all, the impugned notification would adversely affect the fundamental right of the dealers guaranteed under Articles 19(1)(f) and (g) that may constitute a serious infirmity in the validity of the notification . In Narendra Ku ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers relied are Panipat Cooperative Sugar Mills v.. Union of India , (A.I.R. 1973 S.C. 536) and Anakapalle Co-operative Agricultural Industrial Society Ltd. v. Union of India (A.I.R. 1973 S.C. 734) which are on the application of sub-section (3C) of section 3 of the 1955 Act. That subsection relates to sugar and there are special features for fixing of price. In Panipat Sugar Mills case (supra) it is said that fair price of sugar is to be determined ensuring to the industry a reasonable return on the capital employed in the business of manufacturing sugar but the Government cannot fix any arbitrary price or fix it on extraneous considerations or fix such price that it does not secure a reasonable, return on the capital employed in the industry. Panipat Sugar Mills case (supra) is governed by sub-section (3C) of section 3 of the 1955 Act and has, therefore, no relevance to the present case. The case of Premier Automobiles Ltd. v. Union of India [1972] 2 S.C.R. 526 is on section 18G of the Industries (Development and Regulation) Act, 1951. The provisions of section 18G are that the Central Government for securing the equitable distribution, availability at fair prices of any arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fundamental right can be said to arise. In determining the reasonableness of a restriction imposed by law in the field of industry, trade. or commerce, it has to be remembered that the mere fact that some of those who are engaged in these are alleging loss after the imposition of law will not render the law unreasonable. By its very nature, industry or trade or commence goes through periods of prosperity and adversity on account of economic and sometimes social and political factors. In a largely free. economy when controls have to be introduced to ensure availability of consumer goods like foodstuff, cloth and the like at a fair price it is an impracticable proposition to require the Government to go through the exercise like that of a Commission to fix the prices. The Tariff Board and the Tariff Commission did not deal with the question of fixing prices with a view only to holding price line and in the circumstances that justify giving preeminent preference to the interest of the consumer or general public over that of the producers of the commodity and the dealers. Even these Commissions cannot always make a correct estimate of a price which is fair to all because there are i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Act pertained; second, past marketing; and, third, ability to market the amount allotted. It was held there that the Congress instructed the Secretary to make allotments in such manner and in such amounts as to provide a fair, efficient and equitable distribution. The Secretary was given discretion commensurate with the legislative goal. Allocation of quotas to individual marketers was deemed an essential part of the regulatory scheme. The complexity of problem affecting raw and refined sugar in widely separated and economically disparate areas, accentuated by the instability of the differentiating factors must have persuaded Congress of the need for continuous detailed administrative supervision. The Court, therefore, held that the Secretary's judgment would not be replaced to that of the Court by holding on the record that the Secretary acted arbitrarily in reaching the conviction that the years 1935-41 furnished a fairer measure of past marketings than the war years. It was also said Suffice it to say that since Congress fixed the quotas on a historical basis it is not for this Court to reweigh the relevant fac- tors and, perchance substitute its notion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the case of foodstuff in accordance With the provisions of sub-section (3A). In sub- section (3B) it is stated that where either there is no notification under sub-section (3A) or any such notification has ceased to remain in force by efflux of time, the contingencies mentioned therein will happen. Again, in sub- section (3C) the matters contemplated are similar to sub- section (3B). The differences between sub-sections (3) and (3A) on the one hand and sub-sections (3B) and (3C) on the other are these. Subsections (3) and (3A) speak of fixing price by agreement consistent with or with reference to controlled price or failing both market rate prevailing in the locality during three months preceding the date of the notification. Sub- section (3B) speaks either of controlled price or where no such price is fixed the price prevailing or likely to prevail during the post harvest period in the area to which the order applies. In sub-section(3C) which relates to sugar price is to be calculated with reference to minimum price of sugarcane, manufacturing cost of sugar, duty or tax, and a reasonable return and different prices may be provided for different areas or factories 'or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich yarn may be, sold by the dealer in their respective jurisdiction. In specifying the maximum price, the factors to be taken into consideration are (a) invoiced price of yarn, (b) incidental charges including transport and local taxes, (c) such reasonable margin of profit not exceeding two per cent of the invoiced price as may be determined in each case, and (d) any other relevant factor. In the case of counts of 59s and below, the controlled price fixed is the highest ex-mill price or the highest contract price as the case may be for deliveries effected in December, 1972 with 6 per cent increase in the case of yarn producers situated in the States of Tamil Nadu and Pondicherry. In counts of yarns of 40s and below, there was no increase of price for 10 months ending December, 1972. It means free market price. It reflects costs of production and-reasonable return. ]'he normal conditions of supply and demand are indicated. The prices fixed for counts of 59s and below include appreciation in prices in 1970-71 when cotton crop was low and the price in 1971-72 which in spite of bumper crop and fall in price of cotton did not decrease but were higher than the pool prices of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price to the producer on the date it is fixed. The prices of new cotton crop, i.e., for September, 1973 to August, 1974 are not known at the time of the fixation of the price. Even when they are known the petitioners will have to show with reference to the different types of mixes used in producing yarn, the impact of cotton prices on the cost of production of that category of yarn. Further, even if there is increase in the cotton prices, the petitioners can absorb it because the controlled price fixed is more fair to the producer. If he sustains alleged losses or some time, it will be a reasonable restriction because the object of the price control is to hold the price line or revert the prices to normal levels and make available cotton yarn to the handloom and powerloom weavers at a fair price which will enable them to withstand competition from mill-made cloth. It is not shown here that the controlled price is so grossly inadequate that it not only results in huge losses but also is a threat to the supply position of yarn. The controlled price is in the interest of the country as a whole for just distribution of basic necessities. The controlled price is neither arbitrary nor a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 301 of the Constitution. It was also said that there was no obligation on the distribution channels to buy from the mills. Counsel on behalf of the traders who intervened submitted that there was no justification for canalisation of the goods because it was not in public interest and it was a total ban on traders. It was also said that there would be neither equitable distribution nor availability of goods because the order did not provide that it would reach the weavers and the order also did not provide that the agencies were to sell at specified rates. The fifth channel of distribution, viz.. any other person as may be nominated by the Textile Commissioner was attacked on the ground that there was no classification and it conferred arbitrary power of choice. The Cotton Textiles Control Order 1948 confers power by clause 30 to impose control over distribution of yarn. The order states that such power is required to be exercised with a view to securing proper distribution of cloth or yarn. The Textile Commissioner with a view to securing compliance with the directions issued by him shall have re- gard to (a) requirements of 'various categories of persons specified in cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., any other person as may be nominated by the Textile Commissioner such person could also be actual consumer of yarn. The notification No. CER/20/73 dated 31 March, 1973 states that the nominees can be any dealer carrying on business of selling yarn. The distribution control is intended to ensure availability of yam at reasonable or fair price. Profiteering, hoarding, cornering are the evils to be eliminated. it is not that all dealers in yarn have been denied the right to carry on trade. It is only those whose carrying on trade in yarn would not in the opinion of the Textile Commissioner ensure availability of yarn to actual consumers at the fair price. Black marketing as the expression goes is to be weeded out in this manner. The selection of traders is made on the basis of ensuring availability of yarn at a fair price. Elimination of persons who have hoarded or cornered or are unscrupulous in distribution is intended in public interest. This is a reasonable restriction in the interest of the general public and is contemplated in Article 19(6) of the Constitution. In Rashbihari Pande v. State of Orissa [1969] 3 S.C.R. 374 the Government invited offers for advance purchases of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Daruka Co. v. Union of India Writ Petition No. 94 of 1972 dated 31 August, 1973 referred to the earlier decisions in Glass Chaton case [1962] 1 S.C.R. 862, Devasan of Bhimji Gobil case [1963] 2 S.C.R. 73 and upheld the distributing channels of imports and exports of different commodities and goods. The petitioners contend that though the order obliges producers of yarn to sell to persons named there is no obligation on those persons to buy, and, therefore, it is an unreasonable restriction. The petitioners supported this contention by instances where those persons or bodies failed to lift the stock of yarn. It is said that producers, therefore, suffered losses. There were cases where the allottees did not lift the goods when the voluntary scheme was in operation. The allotment order on record shows that the allotment of yarn is made subject to the conditions that the allotted yarn would be lifted within 15 days of receipt of intimation from the mill after making necessary payments. If any portion of the yarn is not paid for and lifted within the stipulated time, the State Government may intimate the same to the Cotton Corporation of India and the mills\concerned. The Cotton Cor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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